The heavy engineering industry has been facing various disruptions for last few years – the biggest one being COVID-19 and the lockdown.
The whole manufacturing industry is affected by outbreak of COVID-19. The heavy engineering industry is no exception to it. Speaking about adapting new way of working, Allen Antao, EVP and Business Head, Godrej Process Equipment said, “Manufacturing of process equipment is an exercise that integrates Design, Procurement, Project Management and the physical activity of actual manufacturing. The lockdown has had an impact on each of these areas. Technical clarifications at the design stage, release of materials take offs, approval of drawings for further manufacturing- all require client approvals. As the whole world is in lockdown mode, offices have switched to working from home. As this is a completely new environment for most industries like ours that operate in the physical space, it has had some initial challenges relating to hardware and bandwidth availability. That said, it is a tribute to how people have adapted to the new way of working. Obviously, there are delays but work has not come to a standstill.”
He further added, “On the procurement side, factories around the world have borne the brunt of stay-at-home orders. While some are still operating, they are doing so with limited manpower availability resulting in lengthened supply timelines. Logistics is another area which has come under severe strain in the COVID-19 affected world. Availability of ships, closure of ports, skeletal working staff at Customs offices and then the restrictions on local transport movement have posed hitherto unknown challenges for both inbound and outbound movement.”
Manufacturing has by far been the most affected. “Strict lockdown regulations in India meant that no production could be undertaken at all since the last 10 days of March 2020. Welders and Fitters and other skilled operators that are critical to Manufacturing in our industry are not all available locally. Out of area workmen have either left for their hometowns or are in the process of leaving as the lockdown has taken an emotional, physical and psychological toll on many of them. The biggest challenge facing Manufacturing as the lockdown rules begin to be relaxed is the availability of labour. Strict social distancing rules are going to affect this space even more leading to far lower productivity. Industrial establishments would still have to absorb a high portion of their pre-lockdown costs. With zero production for the same period, the impact on profitability would be debilitating,” he continued.
What long term challenges does it have? Answering this question, “As was experienced post the 2008 financial crisis, liquidity will dry up. Without liquidity, several mega projects will either be shelved entirely or at the very least, be postponed. This is already beginning to happen with large oil companies cutting back substantially on capital expenditure in exploration & production. Sooner than later, this cut back will also begin to be seen in downstream investments leading to a shrinking of the demand pool for process equipment and other allied Heavy Industries.
It is now a given that the Global Economy will slip into a recession if it has not already. Lower growth will force attention to areas of greater social priority. Capital intensive industries will slip down the priority ladder.”
Revealing the secret of success, he suggested, “At the level of the firm, businesses that conserve cash will survive. Those that don’t will not be able to. Borrowings will drop. Aspirational growth plans will be pushed back. Those that have already invested in new Plant and Machinery will find it hard to achieve the expected Return on Capital Expenditure. The sliver lining is that when these dark clouds lift, those that are ready will be first off the blocks.”
Antao added, “Thanks partly to the rapidly decelerating global growth, exacerbated by some geo-political brinkmanship, crude oil prices have seen a very sharp decline, at one point even slipping into negative territory. Liquidity, growth and the price of oil, work in tandem to fuel the process equipment industry. With each of these factors being as just described, it is a perfect storm that will engulf the process and heavy industry and force it to deal with challenging times for several years to come. The low price of oil will result in stressing oil economies around the world. With less money to spend on social programmes, the Governments of these countries will have to find novel ways to deal with its effects.”
“Unemployment rates around the world are surging. In a complete lockdown situation, that is bound to be. But the experience of the lockdown is sufficient to make it known that some industries are not coming back. Re-skilling and Re-training for a post COVID world will be essential. In our own industry, the low price of oil and consequently gas will put paid? to the prospects of many companies whose aspirations were predicated on a higher price of both. Unless both see a sustained and a sustainable rise soon, many jobs in this space will be lost for good,” he continued.
Warning about other challenges, he mentioned “Climate change and the move from fossil fuels to renewables will surely gain steam. Initially there may be a spurt in the consumption of fossil fuels until economies around the world stage at least a moderate comeback. The post COVID world seems more likely than ever to be the age of renewables. Last but not the least. Manufacturing companies have been the slowest to adopt remote working practices. In most cases, it was not even the exception until now. work from home will become the rule.”
New technology trends
Antao says that, this situation likely to bring changes in the mind-set for adaption of new technologies. “The Internet and the IoT revolution is turning out, for those who have recognised it, to be a game changer in manufacturing. This is giving rise to automation and that too of the low cost variety. Manual activities that were inconceivable in any other form only a few years ago are giving way to automatic processes. This is de-skilling, re-skilling and multi-skilling all rolled in one. As companies seek to grow, availability of skills in the conventional sense will constrain their aspirations. Automation will make people lose their current low skill jobs but prepare them for higher productivity enhancing skills that going forward, will be the only means to sustain the growth and profitability of companies. There will be more jobs, not no jobs, for those companies that embrace these new opportunities, quickly.”
He further added, “The other revolution that is transforming Manufacturing is the Data revolution. Wireless linking of various devices to each other and to servers and clouds, is putting more information into the minds of people, thus enhancing their ability to make quick, data driven decisions. This is helping to enhance quality and productivity on the shopfloor and at the same time is helping to transform legacy practices into more efficient, contemporary ones. Digitisation in the areas of Design, Marketing, Procurement and Project Management is helping to build leaner and more competitive organisations. Real time information flows are helping to reduce cycle time and improve the quality of communications both within an organisation and with all its external stakeholders. B2B Marketing which relied heavily on Face-to-Face contact is now being enabled by high quality conferencing tools like Microsoft Teams, Skype, Google Talk etc. Even inspection is slowly moving on these lines. Unthinkable, only a few months ago.”
In this regards, Zinnov and Cisco recently conducted an impact study titled, "Indian SMBs: On the Road to Recovery from COVID-19", evaluating the effect of COVID-19 on the Indian Small Medium Businesses (SMB) landscape as a whole, and on major verticals including manufacturing. The study suggests SMBs across verticals need to adopt digital technologies such as Cloud, Internet of Things (IoT), Automation, etc., to enhance resilience and future-proof their businesses. They also need to leverage digital technologies to facilitate discoverability through online presence and digital storefronts, keep customers updated through regular digital updates, and increase efficiency by adopting Cloud and Automation-based solutions for common horizontal functions such as finance & accounting, payroll, etc.
In a nutshell, new age technologies are the way forward not just for the giants in the industry but also for the small & medium sized companies.
On a concluding note Antao said, “The heavy engineering Industry is globally competitive. Exports are a key component of the portfolio. This must be encouraged while maintaining our international treaty obligations. There are several areas where our competitors around the world have fiscal advantages. Export incentives, at least to balance these, need to be continued. At the same time, our companies in India must look to indigenise wherever major needs are being satisfied through imports. For the heavy industry, steel is an area that is calling out loudly.”
“Speaking of India, Heavy Industry needs Heavy Infrastructure. While it did seem that much needed investment was being made in India to slowly bring us up to the level of our competitor nations, it would be a pity if such investments, for paucity of funds, are put on the back burner.”